Hong Kong is set to debut a batch of exchange-traded funds (ETFs) that invest directly in cryptocurrencies on Tuesday, potentially challenging the United States' dominance in the crypto investment product market. The launch comes amid a revival in digital asset prices, with Bitcoin and Ether having rallied significantly since the start of the year, though the recent market reaction has been relatively muted.
Harvest Global Investments Ltd., the local unit of China Asset Management, and a partnership between HashKey Capital Ltd. and Bosera Asset Management (International) Co. are among the issuers listing Bitcoin and Ether ETFs in Hong Kong. The demand for these funds will provide insight into whether Hong Kong's push for a tightly regulated digital-asset hub is gaining traction, as officials aim to restore the city's reputation as a modern financial center following a crackdown on dissent.
While US spot-Bitcoin ETFs from issuers like BlackRock Inc. and Fidelity Investments have amassed $53 billion in assets since their launch in January, Bloomberg Intelligence's Rebecca Sin estimates that Hong Kong's Bitcoin and Ether funds may attract $1 billion over two years. However, Han Tongli, the chief executive officer of Harvest Global, believes this projection is "too small," citing Hong Kong's appeal to investors in both the West and the East, whereas the US caters mainly to the former.
Hong Kong's adoption of an in-kind ETF subscription and redemption mechanism, which allows for the underlying assets to be swapped for fund units and vice versa, is seen as a potential advantage over the US funds, which use a cash redemption model. Han suggests that this approach, along with other factors, could lead to Hong Kong ETFs attracting as much as three times the assets of their US counterparts.
Despite the optimism, some experts caution that expected demand should be calibrated in line with Hong Kong's smaller financial sector. The city's existing crypto-futures based ETFs have a total asset value of about $164 million, a fraction of the $2.3 billion ProShares Bitcoin Strategy ETF in the US.
Bosera Asset Management (International)'s Head of Products Ethan Li acknowledges that Hong Kong may lag behind the US in launching spot-crypto ETFs and have a smaller market for passive funds, but he believes the local products will still be appealing for ease of access, especially during Asian trading hours. Bosera's Chief Executive Officer Doris Lian expressed confidence in Hong Kong's future in the global virtual-asset sphere and revealed plans to expand the company's team and digital-asset product pipeline.
As trading in the new ETFs commences, investors will closely monitor net inflow data from issuers to gauge demand for the Hong Kong vehicles. In the past, equivalent figures for US funds have sometimes led to swings in crypto prices as demand fluctuated.
Defying the muted anticipation in the broader market, Zhu Haokang, head of digital asset management and family wealth at ChinaAMC, reportedly claimed during a press briefing that the first-day issuance of shares for the new Hong Kong ETFs may surpass the US debut's $125 million in seed funding. Wayne Huang, head of ETF and custody at crypto exchange OSL, confirmed Haokang's forecast, stating that transactions are indeed far greater than the capital inflow of the US bitcoin spot ETF on its first day of trading.
Haokang also highlighted the potential benefits of the ETFs for crypto prices, as the offerings feed more liquidity to digital asset markets and broaden funding channels and participation. However, crypto markets have been drifting sideways for the last few weeks, lacking a strong investment narrative to drive prices. The CoinDesk Bitcoin and Ether Trend Indicators both remain in neutral reading, indicating a market without a clear direction.
